The Arc of Change

Friday Reflection | January 22, 2021

“We shall overcome because the arc of the moral universe is long but it bends toward justice.”

–Dr. Martin Luther King Jr., “Remaining Awake Through a Great Revolution.” Speech given at the National Cathedral, March 31, 1968

This week the nation celebrated change. On Monday, we recognized Martin Luther King Jr Day to commemorate the birthday of the powerful and compassionate civil rights leader who fought for change. The importance of MLK’s message is amplified by the Black Lives Matter movement and a national re-focusing on racial justice. On Wednesday, the nation celebrated the inauguration of the 46^th President of the United States, Joe Biden, and a marked change from the administration of the past four years.

The inauguration offered powerful visuals, including the historic representation seen in the election of Vice President Kamala Harris. The peaceful transition of power garnered additional appreciation this year in the wake of the assault on the US Capitol and our democratic process. As the opening quote asserts, though, the arc of real change is often a long one – which is true in society as well as financial markets.

The market analyzes trends in an attempt to forecast what is around the corner for an individual company, a sector, or even society more broadly. Knowing what is coming offers a significant advantage in terms of investment strategy, but it is only part of the equation. Knowing the timeline is the second critical component, and is arguably more difficult. For an investor, shifting your portfolio too early, even if you have correctly identified a risk, can lead to frustration.

In the current economy, two risks with longer arcs are the growing federal debt level and worsening income inequality. Both have the potential to stifle future growth for all Americans, and yet, both are viewed as problems to be worried about tomorrow, not today. The national debt is lamented by politicians and citizens alike, and yet the topic of the day is additional spending. While other factors may get the headlines, we think these two challenges will quietly influence investment returns in the coming decade – as a headwind if we fail to act, or an area of opportunity if policymakers are willing to radically rethink public policy.

Dr. Martin Luther King Jr. spoke passionately about economic justice, and yet progress has been tragically slow.¹ While the spotlight is often on his civil rights message, he also trumpeted the need for economic reforms that allow wealth building by historically disadvantaged communities. He endured many threats to his life as he traveled to Memphis to support work on economic justice and indeed was assassinated there while pushing that issue. We believe that more economic justice is fundamentally supportive of broad economic growth, even as we remember MLK’s warning again that the arc of change is a long one.

The near-term focus for investors can largely be summed up in two words: stimulus spending. Investors were re-introduced to Janet Yellen this week; the former chairwoman of the Federal Reserve is President Biden’s nominee for Treasury Secretary and a proponent of further stimulus (she is also the star of a new Hamilton-esque song commissioned by NPR’s Marketplace). In her confirmation hearing, Yellen expressed concern about growing deficits but said that the short-term fix requires more spending.² Specifically, a $1.9T support package that includes more than $400B billion to directly combat the pandemic, including money to accelerate vaccine deployment and safely reopen most schools within 100 days.³

Biden’s stimulus plan still faces challenges in Congress, but even at half the proposed size, it would equal approximately 5% of US GDP this year. And that’s before any promised infrastructure spending, which could total an additional trillion dollars in economic support. The consensus is that a lot more stimulus is coming. Stocks at record highs reflect that

The image of “the arc of the moral universe bending toward justice” is powerful, but MLK’s actions reflected his understanding that the outcome is not predestined. The reality is that the arc is pulled toward justice by hard work and tireless effort stretching across generations.

Active participation is crucial whether the desired outcome is racial justice, effective democracy, or a secure financial future for your family. We understand the arc may be long, and we are privileged to work with clients and their families to build their financial security, and also go beyond that to leverage their financial assets to create positive impact. In support of these efforts, we challenge ourselves to improve our thinking, our technical resources, and our communications to be as effective as possible in supporting our clients’ financial stability and personal well-being.

As Amanda Gorman said with such poise in her inaugural poem, “there is always light, if only we’re brave enough to see it, If only we’re brave enough to be it.”⁴

¹ Economic equality: Martin Luther King Jr.’s other dream. By Douglas E. Thompson.  Washington Post

² The Debt Question Facing Janet Yellen: How Much Is Too Much? By Kate Davidson and Jon Hilsenrath. WSJ

³ Biden Outlines $1.9 Trillion Spending Package to Combat Virus and Downturn. By Jim Tankersley and Michael Crowley. NYTimes

⁴ Full text of Amanda Gorman’s poem “The Hill We Climb” https://thehill.com/homenews/news/535052-read-transcript-of-amanda-gormans-inaugural-poem